Mortgage Insurance

Private mortgage insurance and government mortgage insurance protect the lender against default and enable the lender to make a loan which the lender considers a higher risk. Lenders often require mortgage insurance for loans where the down payment is less than 20% of the sales price. Mortgage insurance should not be confused with mortgage life, credit life, or disability insurance, which are designed to pay off a mortgage in the event of the borrower’s death or disability.

With lender paid mortgage insurance (LPMI), the lender purchases the mortgage insurance and pays the premiums to the insurer. The borrower cannot cancel LPMI or government mortgage insurance during the life of the loan. However, it may be possible to cancel private mortgage insurance at some point, such as when the loan balance is reduced to a certain amount.